A tale of corruption and cost: Vic Department’s $180 million Ultranet project given to company “not capable of delivering the work”

A witness before the Independent Broad-Based Anti-Corruption Commission (IBAC) has described the tender process for the Ultranet project as the “closest thing to corrupt that he had seen in 20 years of working in (the) Victoria Government”.

The Ultranet project, which was intended to be a streamlined IT system for Victorian government schools, cost an estimated $240 million and was dumped in 2013 after ongoing technical issues throughout its implementation. IBAC is currently scrutinising the Department of Education and Training’s (DET) handling of the project based on concerns with the tendering process.

Ultranet: expensive and ineffective

Ultranet was an intranet system that was created for Victorian government schools, and was designed for use by teacher, parents and students. The Victorian Government announced their plans to create the system in 2006, and awarded the contract to CSG Limited (CSG) in July 2009 after a second tender process. The first process failed to yield any tenders which could provide “value for money”. The initial contract was for $70 million.

Ultranet was launched in August 2010 and crashed on its first day of operation. The system continued to be plagued with technical difficulties, and by 2013, The Age reports that it had cost an estimated $240 million and had few users (total waste amount was originally reported as $180 million, the latest estimate is $240 million). The Victorian Government announced in June 2013 that it would end all support for the project.

IBAC’s inquiry into the DET

In December 2015, IBAC announced that they were launching an investigation to “examine allegations of serious corruption at the department”. The hearings, which began on February 15, are focused on:

the Ultranet tender process;

personal and business connections between the successful tenderer and members of the DET (such as the purchasing of shares in CSG before and after the contract was awarded);

the way in which DET employees managed confidential information;

whether DET employees attempted to influence procurement processes;

whether DET employees received payments, gifts, travel, employment opportunities or other benefits due to their involvement in the Ultranet tender; and

DET procurement and conflict of interest processes.

On Monday 22 February, IBAC heard evidence from Geoffrey Lewis, the CEO of ASG Group Pty Ltd (ASG) and Mark Bladon, the former project manager of the Ultranet project.

Mr Lewis’ evidence

ASG partnered with the Oracle Corporation and Aloisio Consulting (which then became CingleVue Pty Ltd) during the first tender process. Their initial pricing for the project was $120 million, which was seen as expensive by the DET. During this first tender process Mr T, an employee of ASG and director of CingleVue Pty Ltd, was “very assertive” in recommending that ASG drop their pricing estimate. ASG did not revise their pricing, as the risk was seen as too high.

No contract was awarded in this initial process.

The second tender process was closed, meaning the DET invited specific companies to participate. Oracle was invited to participate, and informed ASG that they would be partnering with CSG. ASG then commenced proceedings against multiple parties, including Mr T and CingleVue, to prevent them from using ASG’s intellectual property in this second bid. Mr Lewis wrote to the DET to inform them that they had commenced legal proceedings.

“Deep concerns” with the tender

Mr Bladon was appointed as project manager for Ultranet just as or just prior to the second tender materials being sent out. He was involved in the commercial evaluation of the tenders, and reported that CSG’s proposal was high risk, with one internal report stating that the “development risks are extreme”. This was based on the inexperience and small size of CSG, given the scale of the Ultranet project.

In an informal meeting to discuss the tenders received in the second process, Mr Lewis raised his concerns with the risks associated with CSG. A board member of the Ultranet project and department employee, Mr F, became “quite agitated” and swore when Mr Bladon indicated that CSG may not be an appropriate option. Mr Bladon stated that “it was quite clear that to him (Mr F) anything other than the Oracle solution was going to be acceptable.”

Mr F was the previous headmaster at a school that had worked with Oracle when they launched a pilot in previous years. This relationship could have raises conflict of interest issues.

Despite evidence that there was litigation taking place (with ASG) that could affect CSG’s capacity to deliver the Ultranet program, CSG was regarded as the preferred candidate for the project.

The probity officer took her concerns to senior members of the DET based on possible issues with the tender process. Mr Bladon stated that he had deep concerns that “the board would be propping a tenderer that we considered to be not capable of delivering the work”.

Despite these concerns, the contract was awarded to CSG.

$240 million waste

Although we have previously reported on IBAC’s investigations into a ’5 star’ trip to New York during the development of the Ultranet project, the evidence given by Mr Lewis and Mr Bladon suggests that issues with the Ultranet project were identified prior to the contract being awarded. This evidence suggests significant governance breaches were involved in the award of the contract to CSG.

Such breaches can occur in any type of organisation, and the importance of non-government schools having transparent and accountable procurement processes is evidenced by the recently issued Not-for-Profit Guidelines for Non-Government Schools by the NSW Government. The NFP Guidelines suggest processes and procedures to help schools ensure that their funds are spent appropriately in accordance with tighter funding requirements in the Education Act 1990 (NSW). Non-government schools are increasingly subject to legislative restrictions in relation to the terms of government funding.

The unravelling of the Ultranet tender process before IBAC reveals that conflicts of interest and other governance breaches affected the DET’s decision making process.

The culture of the project also prevented any real action being taken in response to significant and ongoing concerns. Despite having policies in place to regulate the tender process, these were not implemented correctly and the tender process proceeded in spite of the numerous criticisms raised by a number of parties about the capability of CSG to deliver Ultranet.

The $240 million blow out for a product which was ultimately abandoned due to its ineffectiveness was a significant embarrassment for the DET, and a loss of $240 million which could have been better used to benefit schools.

About the author

Stephanie Fehon is the School Governance Reporter. She can be contacted here